How to get a loan with bad credit

Bad Credit Loans

By Sharon Secor

Direct Lending Solutions Staff Writer

***This article is supplied for informational purposes only. Lending criteria are not as lenient as they once were. ***

Sliding into the sub-prime borrowing category due to bad credit is something that can happen to almost anyone, despite the best of fiscal plans. Occasionally the unexpected simply happens, such as a catastrophic event or illness, and sometimes it just takes some people a bit longer to get their fiscal balance or to mature financially. Whatever the cause of your sub-prime borrower status, rest assured that it does not spell the end of opportunity for you. There are bad credit loans available and, when used correctly, this type of loan can help you to re-establish your credit rating.

The Increase In Opportunities For Bad Credit Loans

During the past decade, there has been a significant growth in the number of sub-prime borrowing opportunities, as well as in the types of bad credit loans available. For example, according to a USA Today report, “sub-prime mortgage activity grew an average 25% a year from 1994 to 2003.” In addition to mortgages, the range of bad credit loans includes bad credit car loans, secured loans and personal loans. According to the USA Today story, you are not alone in seeking a sub-prime borrowing opportunity, as one major online lender quoted, Amerisave, indicated that about 33% of those in the United States fall into this category.

However, with the increase in bad credit loan opportunities has come a rise in fraudulent and predatory loans. This makes it especially important to be an informed consumer. That way, you avoid doing further damage to your credit and finances, and even have the opportunity to begin to improve your credit rating and work your way back into the prime category by performing well with a bad credit loan from a reputable lender.

How Sub-prime, Or Bad Credit, Loans Differ From Prime

The primary differences between the two loan groups lie in the greater need for the sub-prime lender to protect themselves against default, as the odds are higher that a sub-prime borrower may struggle more to keep to the repayment schedule. Therefore, when taking out a bad credit loan of any sort, you can expect to be subject to a higher interest rate. Often, a higher down payment is required and the fees associated with obtaining the loan will be greater than those requested of borrowers with better credit ratings. Pre-payment penalties may also bear looking at, as these can also run a bit more than those associated with good credit loans While this bit of extra protection for the lender is not unreasonable, it is essential to do your research to make sure that these higher costs are not excessive.

Types Of Bad Credit Loans Typically Available

One of the most popular of the bad credit loan types is the sub-prime home mortgage. Often, their availability can be the difference between owning a home and not. In many cases, it is worthwhile to take on this type of debt, but only when done so in a cautious manner that takes into account the concrete reality of your finances.

Easier access to credit, via both legitimate sub-prime lenders and predatory lenders, often makes far too much money available to borrowers than is really practical, and in the excitement of being able to get financing for a home, borrowers may end up with more house than they can really afford. This has contributed to record levels of home foreclosures, as well as to the housing market bubble, in which prices and values of homes have been artificially inflated by so much action in the real estate market. It is better to borrow conservatively when doing so in the sub-prime home mortgage category, taking on debt for the house you need now and working towards improving your credit rating and finances so that you are able to get the house that you want in the future.

Bad credit debt consolidation loans are also among those sought after, and with good reason. A bad credit debt consolidation loan that comes from a reputable lender can be a valuable tool to a borrower committed to improving his financial situation and repairing credit. As with any sub-prime category loan, the associated costs and interest will typically be a bit higher. However, by taking the time to carefully shop for the right loan, comparing terms and costs, it is possible to find the right bad credit debt consolidation loan, one that can serve to help get your finances back on the right track.

Other types of bad credit loans include personal loans and automobile loans. With the higher interest rates and fees typical of bad credit loans, it is worthwhile to give long and hard consideration to whether or not taking out the loan is the only or best option for you fiscally. It may make more sense to put off the personal loan for as long as possible or perhaps to drive the old auto a bit longer or consider buying used vehicle, and work on improving your credit before attempting to take out a loan. Of course, sometimes that is not possible and a loan is essential now. In this case, you’ll want to do careful research on the opportunities available to you, making sure to get the best loan deal possible.

Another type of bad credit loan, one that differs from the others by having less to do with credit rating and more to do with income, is the cash advance loan, often referred to as a payday loan. These are typically for smaller amounts of money, ranging from around $100 to $1500. Offered without credit checks and at high interest rates, these are expensive and sometimes fiscally dangerous loans, and should be avoided except in cases of dire need. In fact, the Federal Trade Commission has issued a consumer alert about these loans, as it is very easy to get in over your head by getting involved in this type of lending agreement.

How To Choose The Right Bad Credit Loan For You

While the need for caution is definitely present, the fact remains that bad credit loans can offer a great opportunity to those in the sub-prime lending category. For many, it is their best option for securing a home or for helping themselves to get back on the path to fiscal health. Therefore, it is important to spend the time necessary to choose the right bad credit loan for your particular circumstances.

Once you’ve given the matter sufficient thought as to be sure that a loan at this time is the right financial move for you, information is the key to making the best choice. You’ll need to understand the loan process and requirements thoroughly, right down to the final word of the fine print on the agreement. Don’t be afraid to ask questions.

Shop around. Just because you may be in the sub-prime category doesn’t mean that you have to take just anything that comes your way. Remember, approximately one third of all Americans are also in your position, which means there is competition among lenders to serve this segment of the market. Taking your time to carefully review the opportunities available to you can really save you money. Run the numbers – the APR, or annual percentage rate, fees and other associated costs -- and figure out just what each loan opportunity will cost you.

Give careful consideration to the amount of the loan you apply for, resisting the temptation to take on more debt than is absolutely essential. Make sure that the repayment schedule you agree to is realistic, one that truly matches your financial capabilities. Predatory lenders often are willing to cut corners or turn a blind eye when it comes to the realities of repayment, as they benefit from your failure.

When it comes to bad credit loans, the old adage “if it seems to good to be true, it probably is” definitely applies. There are many loan scams and predatory lenders looking to capitalize on the vulnerabilities of those who are inexperienced or are in desperate need of funds. Read up on fraudulent lending practices and scams, and be wary of lenders that pursue you or request sums of money up front and outside of the usual banking routines. Asking that money be transferred by wire, such as through Western Union or Moneygram, to secure a loan or make a first payment is a typical ploy of advance fee loan scammers.

Sub-prime borrowing, or a bad credit loan, can be a positive financial move in the right circumstances. When used wisely, they are a valuable resource for those who find themselves in the sub-prime category. Being an informed consumer is the best way to avoid the potential pitfalls of bad credit borrowing.

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